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Cheniere makes positive FID on 6th LNG train at Sabine Pass in Louisiana

Highlights

Decision follows December offtake deal with Petronas

Apache gas supply deal to support Texas terminal expansion

Houston —

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Cheniere Energy advanced plans Monday for a sixth liquefaction train at its Sabine Pass export terminal in Louisiana and disclosed an arrangement that would tie a natural gas producer to an international price index and help support an expansion at its Corpus Christi facility in Texas.

Executives promised investors steady growth heading into the next decade, at a time when other developers are starting up export facilities along the US Gulf and Atlantic coasts and proposing new ones. Looking to distance itself from its competition, the biggest US LNG exporter said optimization efforts will allow it to boost the average production of all of its trains to as high as 5 million mt/year.

The difference now, compared with when Cheniere first contemplated being an exporter a decade ago, is that, as it has matured, it has built a portfolio with its long-term supply contracts that can be used to support production units across its facilities, rather than necessarily being tied to a specific train. That has given it, and the banks that are helping finance its latest train, confidence.

"I spent my first 35 years in the power business," CEO Jack Fusco said during a conference call with reporters after making a presentation to investors in New York. "There's no way we're taking merchant risk in the LNG business."

The positive final investment decision to advance a sixth train at Sabine Pass was largely expected by the market after Cheniere announced in December 2018 an offtake deal with Malaysia's Petronas to support the production unit. Cheniere said in its presentation that an offtake agreement with commodity trader Vitol announced in September 2018 will also be used to support Train 6.

Mostly what was left in recent months was for Cheniere to obtain financing to help pay for building the train. Cheniere said it has obtained $1.5 billion in financing.

When the Petronas and Vitol offtake that is being assigned to the Sabine Pass unit are combined, about 40% of the original capacity from Train 6 is covered directly by long-term contracts. When Cheniere made a positive FID on the third train at its facility in Texas, it did so with 66% of the capacity covered by long-term contracts tied specifically to the unit, compared with the roughly 87% of capacity that Cheniere contracted for earlier trains at both of its terminals.

In its presentation, Cheniere committed to securing an additional offtake deal with a creditworthy buyer to support Sabine Pass Train 6 before the end of 2020. If it does not sign anymore contracts for the train, the company expects to assign offtake from a previous deal with Polish oil and gas company PGNiG to the train, Chief Financial Officer Michael Wortley said on the call with reporters.

Regardless, when it comes to an FID for the train, Cheniere no longer needs to worry about having the bulk of the capacity committed under long-term contracts to the train before moving forward.

"We as a company are well beyond that," Fusco said.

Sabine Pass feedgas deliveries have averaged just over 3.8 Bcf/d over the past 30 days, peaking at just under 4.1 Bcf/d in mid-May. The high rate of delivery, which represents near full utilization of peak liquefaction capacity, comes despite fairly low downstream market prices and weak netbacks, S&P Global Platts Analytics data show.

NETBACKS OUTLOOK

Platts Analytics estimates that LNG netbacks, inclusive of vessel and feedgas costs, flipped negative from both the Platts JKM, the benchmark price for spot-traded LNG in Northeast Asia, and the Dutch Title Transfer index, or TTF, last week. This would suggest that high-cost, marginal offtakers may consider optimizing their supplies, which could include shutting in LNG export capacity. However, the weakness appears to be confined to the spring months, with the forward curve for the TTF and JKM both indicating that spreads will open up when demand returns in Asia this summer. As a result, it is unlikely US LNG production will see any curtailment in the near future, despite near-term price weakness.

Also Monday, Cheniere said it has entered into a long-term gas supply agreement with Apache for its Stage 3 expansion project at its Texas export terminal. Apache will sell about 140 MMcf/d of gas to the project for a term of 15 years. The LNG associated with this gas supply will be marketed by Cheniere. Apache will receive an LNG price, net of a fixed liquefaction fee and certain costs incurred by Cheniere, for the gas delivered under the agreement. The LNG price will be based on international LNG indexes.

The proposed project would include up to seven mid-scale liquefaction trains with a total capacity of about 9.5 million mt/year of LNG. An FID on the expansion is expected as early as 2020.

"We are not taking commodity price risk," Chief Commercial Officer Anatol Feygin said on the call. "We pass it through. There is a realization on the other side, and the producer gets a netback."

-- Harry Weber and Ross Wyeno, newsdesk@spglobal.com

-- Edited by Keiron Greenhalgh, newsdesk@spglobal.com